Farm Credit Bank Charter Plan Faces Delay

WASHINGTON  The chairman of the Farm Credit Administration conceded Tuesday that Congressional pressure may delay a plan to grant national charters to Farm Credit lenders starting Jan. 1.

Testifying before the House Banking Committee, Michael M. Reyna defended the Farm Credit Administrations decision to bypass formal rulemaking procedures in allowing Farm Credit lenders to expand into new territories.

But House Banking Chairman Jim Leach said the regulator of the Farm Credit System overstepped its authority. The Iowa Republican told the committee that he has asked the General Accounting Office to determine whether the Farm Credit Administrations national charter initiative is subject to a formal review process by Congress and the GAO.

If the report, which Rep. Leachs office expects to receive later this month, finds that a national Farm Credit charter is subject to formal vetting, implementation would be delayed at least 60 legislative working days, according to federal law.

Rep. Leach asked Mr. Reyna if he would withdraw the plan to grant national charters if the GAO report determines that the process was inappropriate.

If there is a compelling case, we would have to take that into consideration, Mr. Reyna responded.

After the hearing, Mr. Reyna told American Banker that GAO findings and Congressional pressure could potentially affect the Jan. 1 start date for issuing the charters.

Farm Credit lenders are allowed to make loans only in their own geographic regions. The new charters would allow Farm Credit lenders to operate anywhere in the country.

Of the nations 158 Farm Credit lenders, 131 have applied for national charters.

Mr. Reyna testified that national charters are vital to the Farm Credit Systems viability. Rigid territorial constraints posed unsafe and unsound conditions on Farm Credit System institutions, which hindered their capacity to serve agriculture and rural America, he said.

But the proposal has angered bankers  and some members of Congress  who worry that it would give government-aided lenders an unfair competitive advantage and would be too risky as lenders venture into unfamiliar regions.

We are very concerned that with national charters, [Farm Credit] institutions will engage each other in a disastrous round of low-ball pricing that will undermine the safety and soundness of the entire system, Dennis Everson, senior vice president of the First Dakota National Bank in Yankton, S.D., testified.

Rep. Leach warned that a national charter would likely open the floodgates for Farm Credit lenders to move into nonagriculture lending. If that happens, he said, Our financial market system could literally be traumatized with government credit competitively crowding out private markets.

Rep. Leach also slammed the Treasury Department as AWOL on significant GSE issues including the decision to create national Farm Credit charters.

In written testimony, Treasury Assistant Secretary Gregory A. Baer said the Farm Credit Administration is an independent agency and it is not required to clear such policies with the Treasury Department.